Why Utilize P3s?
Why Utilize a Performance Based PPP Approach?
Given the magnitude of the need and constrained budgets, the public sector lacks the necessary resources to deliver vital infrastructure programs, which often delays renewal and results in the continued use of inefficient facilities. Distinct from a PPP, the use of traditional or even design build procurement precludes a true whole of life view of facilities, addressing only the construction cost when they are procured. This often leads to significant cost overruns, schedule delays and higher operating costs. Given that the construction cost of a facility is less than 10% of the asset’s life-cycle cost, it is crucial to place more emphasis upfront on the whole of life outlook for the facility.
PPPs use an efficient allocation of risk to stretch our tax dollars, create jobs sooner, and do more with less. According to the Associated General Contractors of America, each billion invested in construction adds about $3.4 billion to GDP, about $1.1 billion to personal earnings and creates or sustains 28,500 jobs. Over the past 6 years, performance based PPPs have facilitated $18 billion in innovative transportation projects, creating thousands of US jobs.
Value for Money
Long-term contracts (25+ years) capture the asset’s lifecycle costs. Current tax code prohibits a DBOM project from having a contract of more than 15 years (or 20 years for utilities).
Performance is Incentivized
Private finance = skin in game. Payment is contingent on performance: on-time and on-budget delivery and long term performance of the asset.
Increased Cash Flow
Private financing reduces demands on the public’s bonding capacity, freeing up government funds for other vitally needed public services.
Public payments begin when construction is complete, reducing upfront financing costs and incentivizing an accelerated completion schedule.
A P3 (design-build-finance-operate- maintain) structure, not the public sector, absorbs the risks of short- and long-term cost overruns. Guarantees quality of maintenance.
Highly complex projects especially benefit from this approach (such as the Port of Miami Tunnel in Florida and the Goethals Bridge Replacement in New York).
Example Advantages of PPP Project Delivery vs Traditional Methods
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|Project||Accelerated Delivery||Cost Savings||Job Creation/Economic Impact||Project Status|
|Denver FasTracks EAGLE, Colorado||Expected completion date 11 months earlier than under traditional procurement methods.||$300 million (14% below Owner’s original estimate)||More than 1,000 direct jobs and 1,500 indirect jobs created during construction, more than 300 permanent jobs, and 2,573 yearly O&M jobs. More than $3 billion will be added into the economy over the next decade. More than $3 billion will be added into the economy over the next decade.||Commercial & Financial close reached August 2010; scheduled to open in 2016.|
|I-595, Florida||Provided capacity improvements 15 years earlier than traditional pay-as-you-go funding approach.||$500 million (46% below Owner’s original estimate)||Over 275 local companies employed on the project and averaged over 2,000 employees per month working directly on the project. Averaged over $17 million in monthly construction expenditures.||Commercial & Financial close reached March 2009; opened to traffic March 2014, and accepted final acceptance by summer 2014.|
|Port of Miami Tunnel, Florida||Undetermined – likely would not have moved forward without a PPP approach.||$750 million (50% below Owner’s original estimate)||968 direct employees have been hired since the beginning of the tunnel project, 80% are Miami-Dade County residents. 6,728 people have worked on the tunnel project indirectly. 831 companies (subs, vendors, suppliers) have done business with the tunnel, 442 companies are Miami-Dade County businesses that have shared in over $300 million in local contracts.||Commercial/Financial close October 2009; expected final acceptance by August 2014.|
|Ohio River Bridges (East End Crossing), Indiana/Kentucky||Expected completion 242 days earlier than under traditional procurement methods.||Approximately $228 million (22.7% below Owner’s original estimate)||More than 15,000 jobs over a 30-year period. Economic impact of $87 billion.||Commercial close reached December 2012; substantial completion expected by October 2016.|
|Long Beach Courthouse, California||Completed 30 months earlier than under traditional procurement methods.||$52 million (15% below Owner’s original estimate)||450 construction jobs and between 50 and 100 management positions created. Over 6.1 million construction man-hours employed.||Commercial & Financial close reached December 2010; occupancy readiness achieved August 2013.|
|Goethals Bridge, New York||Expected completion 6 months earlier than under traditional procurement methods.||$150 million (10% below Owner’s original estimate)||More than 2,250 direct construction jobs ($224 million in wages). $872 million in economic activity.||Financial close reached November 2013; substantial completion expected in 2018.|
|I-4, Florida||Completed 27 years sooner than if waited for traditional funding to become available.||$1.3B-$1.4B (34% - 35% below Owner’s original estimate)||Generating approximately 64,400 new jobs in the Central Florida area. Local economy could be infused with more than $13 billion in growth.||Commercial & Financial close reached September 2014; completion expected March 2021.|
Did You Know?
According to the Canadian Council for Public-Private Partnerships’ database, 206 PPP projects were initiated since 1991, with a total project value of over $63bn.
Did You Know?
The 10-Year Economic Impact Assessment of Public-Private Partnerships in Canada (2003-2012) concluded that PPPs generated CAD 51.2bn in direct economic output, 290,680 direct full-time equivalent jobs, CAD$7.5bn in tax revenue and CAD$9.9bn in cost savings.
Did You Know?
(88 Social Infrastructure projects alone have been completed in Canada between 2003-2012).